- Summary:
- Nasdaq 100 index rose today as optimism returned to the market. Will this rally last? Tesla share price bounces after Morgan Stanley and Goldman downgrade
The Nasdaq 100 index bounced back today, a day after suffering its worse sell-off since March. The index, together with the Dow Jones and S&P 500 are up by more than 1%.
Is this a dead cat bounce?
Some analysts believe that the gains made by the Nasdaq 100 index are a dead cat bounce. This is a small bearish rally that happens after a financial asset makes significant losses. There are several reasons to believe this theory.
First, there is still a risk that a second wave of the coronavirus pandemic will soon come. This is partly because of the recent protests that happened in highly vulnerable cities like New York, California, and Washington. Analysts believe that these cases will start to spike in the coming week.
Second, there is a risk that the recent rally was fuelled by retail traders. As I wrote a few weeks ago, institutional investors have largely stayed away from the market, hoping that the market will drop. Indeed, as I wrote yesterday, fund managers at Mubadala expect the major indices to fall by between 10% and 20%.
Third, major indicators of risk were at record highs. I wrote about the fear and greed index, which was at the greed level. I also showed that most technical oscillators were in the overbought level. This is usually a sign that a pullback was inevitable. It was easy to see this hysteria by looking at retail traders who were buying shares of bankrupt companies like Hertz.
Tesla share price ignores analyst cuts
Meanwhile, Tesla share price, which is a major component of the Nasdaq 100 rose by almost a percentage point even as Goldman Sachs and Morgan Stanley slashed their guidance. In a statement, Adam Jonas of Morgan Stanley said that he saw risks of the company’s performance in China. He said:
“Among the many risks facing Tesla at this time, we would rank risks related to U.S.-China relations at the very top.”
In another note, analysts at Goldman Sachs downgraded the firm said that its valuation seemed stretched. Tesla share price is at $972, giving it a market value of more than $180 billion.
Download our Q2 Market Global Market Outlook
Nasdaq 100 technical outlook
On the daily chart, Nasdaq 100 is trading slightly below the important level of $9,760, which was the highest level in March. The price is still above the 100-day and 50-day exponential moving average. Even with the gains made today, it is relatively risky to go long the tech-heavy index.
A close above $9,800 will mean that there are more buyers in the market, who will be keen to push it higher. On the other hand, a close below yesterday’s low of $9600 will see the index move lower.